Wednesday, May 11, 2011

I believe it, I just filled up my gas tank at over $4.00 a gallon. I thought prices were supposed to be coming down. I was talking to a gas station attendant recently and was surprised when he said that no customers were complaining. "Really?" I asked. "Oh, people seem to understand," he said. Funny, they didn't when Bush was president. Perhaps the lack of negative media hype leaves people feeling less upset. Funny about that.

Obama could bring gas prices down tomorrow by simply allowing existing permits to go through and speeding up permits in the gulf. That would signal the markets that supply will increase in the future and will pull the rug out from beneath the speculators gambling on the opposite.

The CME Group is trying its best to get rid of the smaller speculators in the market by upping margin requirements for oil futures.

The financial media's own "speculation" is that oil prices are going to continue to come down because "the commodities bubble has burst". That's where the predictions of 50 cent reductions by summer were coming from. That could happen, but it really depends on what happens with the USD and EUR. If the USD remains low, Oil prices will remain highish, whereas if the USD improves (perhaps due to a weakening in the EUR due to fiscal issues there), Oil will go down. That will happen regardless of what the specs in the market do. Of course, whether that's likely to happen is anyone's guess, given that, regardless of what the Eurozone's fiscal worries are, the U.S. has substantial fiscal worries of its own, which also serve to keep the value of the USD low (and oil and other commodity prices high).

I think a lack of media hype is definitely the X Factor here. When prices rose under the Bush administration, I recall reporters seemingly rooted in front of gas stations, working to create an atmosphere of continual crisis. But under a president with a "D" after his name? Maybe a passing mention of high prices, but usually accompanied with an explanation about why it's not the government's fault or with a a hopeful blurb about how prices could start falling soon. The difference in tone is striking, and I suspect it has a profound impact on the national mood.